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13 October 2022

Kwasi Kwarteng’s Budget is being rewritten while he’s across the Atlantic

The Chancellor insisted today that “our position hasn’t changed”, but behind the scenes it’s a different story.

By Rachel Wearmouth

A divide appears to have opened between Liz Truss and Kwasi Kwarteng today, as Downing Street began rewriting the Chancellor’s Budget while he was in the US.

Kwarteng, who is in Washington DC for meetings with the International Monetary Fund (IMF), is under pressure to backtrack on the £45bn of unfunded tax cuts he announced in the mini-Budget on 23 September, after sterling crashed and financial markets were thrown into chaos.

The abolition of the top rate of income tax has already been abandoned, and speculation had been growing that the government was preparing to U-turn on scrapping the planned rise in corporation tax, worth £18bn. Insiders said that the Prime Minister was in crisis talks about the Budget.

The rumours caused sterling and the government bond market to rally. But then the Chancellor refused to confirm the reports and said he was “totally focused on delivering on the mini-Budget”. When pressed about potential U-turns he said: “Our position hasn’t changed. I will come up with the medium-term fiscal plan on 31 October as I said earlier in the week and there’ll be more detail there.”

As it stands, Kwarteng is not expected to make a statement in the Commons before Halloween, when the Office for Budget Responsibility’s delayed economic forecast will also be published. Publicly, the government is attempting to hold this line, but further market chaos this week appears to have prompted Truss to start redrawing plans regardless of whether the Kwarteng is at the table.

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This follows her extremely ill-received appearance before Conservative backbenchers at the 1922 Committee on Wednesday night (12 October), where MPs described her attempts to reassure them as “appalling”. Rob Halfon, chairman of the Education Select Committee, told Truss she had “trashed the last ten years of workers’ Conservatism”.

Earlier on Wednesday, at Prime Minister’s Questions, Truss told Keir Starmer she would “absolutely” not cut spending to fill the gap left in government finances by the Budget. However, her spokesperson would not later confirm that this was correct.

Truss said in her speech to the Conservative Party conference in Birmingham last week that she and Kwarteng, who are long-standing allies as fellow low-tax Conservatives, were in “lockstep” on their plans for the economy. Some MPs, however, have told the New Statesman that the only way Truss can survive is if Kwarteng is replaced, with one suggesting that Nadhim Zahawi, the Chancellor of the Duchy of Lancaster, who was briefly chancellor of the Exchequer in the last days of Boris Johnson’s premiership, was “waiting in the emergency room” to step in.

Pressure for the government to change course is coming not just from furious Conservative MPs looking nervously at Labour’s sharp rise in the opinion polls. Today Kristalina Georgieva, managing director of the IMF, rebuked the government. “Don’t prolong the pain,” she urged ministers. “If the evidence is that you need recalibration it is right for the government to do so.”

She added that “fiscal policy should not undermine monetary policy” – another apparent signal that the Truss administration should act, given that Andrew Bailey, governor of the Bank of England, has said that the Bank’s £65bn bailout of the bond market would end on Friday.

Convention dictates that a chancellor whose Budget is reversed should resign. Asked today if his job was under threat, Kwarteng was bullish, insisting “I’m not going anywhere” and that he would “absolutely, 100 per cent” be Chancellor this time next month. Truss must know that forcing him out would leave her isolated and her authority in tatters, but the scale of the damage both to the country’s reputation and her party’s standing means she may conclude she has no choice.

[See also: Kwasi Kwarteng to be sacked by Liz Truss]

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